General Market Discussion

[Kim 7,421]

I'm creating this topic to discuss the general market, macro trends etc. Please share your thoughts here.

[Kim 7,421]

So.. was it a capitulation? Last hour of a crazy day.  We are seeing heavy volume and extreme volatility. 

 

Dow was down 450 points and S&P 52 points, they are now down "only" 170 and 14 points. Russel 2000 is actually up 14 points.

 

The bottom of the day also seemed to coincide with these comments from the Fed:

*YELLEN SAID TO VOICE CONFIDENCE IN EXPANSION AMID FOREIGN RISKS"

[PaulCao 51]

Hi,

 

Just adding my $0.02 and hoping to get everyone else's take. 

 

So given today's action, we might have a "soft" support level at where Dow/SPY bottomed out on this afternoon before bouncing back. But I'm not convinced that it's a real bottoming, being very cautious, I wouldn't be surprised if there was another major 2-3% dip from that point in the indices before we truly bottom out. This is purely based on sentiments I've gathered from the "experts" voicing their opinions on WSJ, CNBC etc; on Monday, SPY has broken from their original "technical 200-day MA" and VIX broke out likewise from its resistance.

 

So whether Yellen or ECB issues some words of encouragement, or earnings season show some positive signs, we might see some consolidation but given the market jitter, any other catalyst like Ebola/ISIS/Europe triple dip will probably send the market down again for the next bottom.

 

Best,

PC

[fruju 1]

Dow was down 450 points and S&P 52 points, they are now down "only" 170 and 14 points. Russel 2000 is actually up 14 points.

 

I'd be happy if the Russell stopped having these 3% intraday swings.  This morning dropping to 1040, then on a short squeeze going all the way back to 1075 just before the close is no good for my heart. 

[Marco 221]

I'm in 2 minds on whether this is the bottom.

 

On one hand some 'fear measures' (VIX, VVIX, treasury yields) are at some (relative) extreme levels and price action indicates there was some (first?) forced liquidations now. And I think US economy is still in a comparatively good shape.

 

But on the other hand I still see too much commentary from people looking to buy the dip and looking for the bottom so I think there are still plenty of longs that need to sell before we can stabilise. Europe is still in a mess and the markets seem to wake up a bit more to that again and there are plenty other of fundamental reasons to be bearish.

 

So I'm long from some knife catching attempts but only playing a short term bounce and looking to take a more cautious stance for now.

[Kim 7,421]

Well, it looks like October 15 WAS indeed the bottom, at least for now. SPX rallied 120 points since then in less than a week!

 

As one of traders said, just one week ago the World was coming to and end and now everyone has their rally caps back on. Investors really are sheep – except I think sheep have better memories…

[Kim 7,421]

Equity markets the world over have gained hundreds of billions of dollars in value over the last few hours for one very simple reason, the Global Economy is infact WEAKER than you thought before you went to sleep last night.  Rejoice.

 

http://www.riskreversal.com/2014/11/21/morningword-112114-one-of-these-days/

[Kim 7,421]

So... 5 down days in a row.. S&P down 100 points in one week. What's next?

 

So far every dip has been followed by a spirited "V bottom." Will the history repeat or we are headed lower from here?

[bam1960 53]

Good questions indeed.

[Optrader 118]

Is there any play in OIL ? that we can take advantage of current volatility ? XOM or SLB ? or plain OIL like USO ?

[Kim 7,421]

We wll check XOM when we get closer to earnings date, but my guess is the the straddles will be expensive.

[Marco 221]

Is there any play in OIL ? that we can take advantage of current volatility ? XOM or SLB ? or plain OIL like USO ?

USO has the problem that if oil futures are in contango (which they are now) the EFT will have a decay. I.e. you lose money every day even if oil is unchanged (same principle as VXX if you are familiar with how that works). Same issue with futures i.e. you either have the cost of rolling to the next maturity at a higher price when they expire or you buy a longer maturity at prices well above spot.

 

So might be better to play it via the stock of an oil major - but they wont participate 1:1 on a recovery of crude just as they didn't drop 50% like crude prices on the way down.

 

If you like it risky look at the Russian oil stocks (Gazprom, Rosneft..they trade in USD on London Stock exchange and dropped 50% or more in the last 3-5 months). Russia very exposed to falling oil prices so overall stock market there and their ccy in distress every time crude makes new lows so they will recover a lot if crude trades significantly higher but on the flip side will be in further distress if it stays low or drops further and you got the risk of a Russian default and geopolitical risk (Putin invading someone) on top of that

[Optrader 118]

The only strategy that can work in this environment for SLB or XOM or any high volatility stocks is covered call and I dont have that much capital to get a small return using covered call. 

The profits should ideally be open ended or large enough to justify taking risk and covered call just does not have it.

 

I dont want to sell some put spreads. I feel luck now that I did not sell any put spreads on USO when it crashed to 25 and I thought it was bottom

 

Better to stick to our strategies and stay away from market which is not favorable.

We have a very busy earnings season starting next week. 

[luxmon 228]

Mukundaa,

 

If you have a good feel for timing, you should look at a long call diagonal on those stocks to emulate the covered call trade.  Sell the call you would if you held the stock and buy an ITM call further out with ~ 0.75-0.8 delta.  You can do it for much less capital (i.e., if the falling knife keeps going down you're out of the way at your long strike).  

 

Tim

Edited January 7, 2015 by luxmon

[Optrader 118]

This is not the same as covered call though. The gamma risk of the short call can trouble the long call if it gets in the money around expiration . 

With covered call, you can just relax in expiration week as worst case is your position is auto closed .

[bam1960 53]

Well I suppose we have our answers to Kims questions.

 

I'm not a prognosticator nor a bull but I don't think this market is going to quit until easy money starts to dry up. One of the ideas behind the fed and ECB is during the 1929 depression fed had low interest rates early but raised them and caused to go back into even deeper depression in 1937-1938. So while I think we will go higher where no one knows but when it does break it will be ugly.

 

This is one reason why I like SO strategy so much and also why the straddles are very important to maintain in low iv environment because that could change in a heartbeat. Just my opinion.

[Kim 7,421]

Here is an interesting article about current market conditions from someone I follow and respect - http://stateofthemarkets.com/report/50585/.

 

So, in September/October the S&P 500 fell nearly -10% in 19 days. In December, the index dropped almost -5% in 7 days. And over the past week, the market dove -4.2% over a span of just 5 days.

 

The bears suggest that with pullbacks becoming more frequent, the primary trend may be about to change. Our furry friends go on (and on) about global macro risk, the Russian currency crisis, the slowdown in Europe, the crash in oil, current valuations, where rates are headed next, etc.

 

And yet, each time, the market has reversed higher within a single session and proceeded to dance merrily higher as if the worries that were behind the dive had suddenly abated.

Among market technicians, such a move is referred to as a “V Bottom.” There is no waffling around the lows, no “testing” of support, and no second guessing about the validity of the worry. Nope, a “V Bottom” is simply a risk-on/risk-off type of situation.

 

And the key point is that this type of action has dominated the stock market environment since the end of 2012.

 

According to Dana Lyons of J Lyons Fund Management, the S&P 500 had produced just under 40 “V Bottoms” during the 62-year span between 1950 and 2012. This means that about once every year and a half, the market would fool everyone and put in a “V Bottom.” As such, one can easily argue that this type of action had been fairly rare.

 

But apparently, this is no longer the case. Since the beginning of 2012, there have been a total of 9 “V Bottoms” – and we could be seeing the start of #10. So instead of the market “V-ing” a couple times a year at most, it is now reversing on a dime every three months or so on average.

[Optrader 118]

The only issue with these reversals or volatility like now or october is the vol kicks before earnings season which hurts earnings trades.

Dec was perfect time as we were already in NKE/ORCL/FDX etc.  I was actually tired of rolling up / down those trades.

 

But OCT hurt us as IV started to come down.

 

I see the same thing now. Hope the IV cools off quickly before earnings season. 

 

Also we are lucky to have skipped CMG . That stock with no news has moved 2 SD in 2 days. 

[Optrader 118]

 

 

This is one reason why I like SO strategy so much and also why the straddles are very important to maintain in low iv environment because that could change in a heartbeat. Just my opinion.

 

Well I want to reiterate this opinion.

I have not found any other winning strategy trading options other than SO and  sleep at night peacefully.

[Vin 0]

why does oil price goes down when "USA" rig count and inventory goes down. It has to follow the world wide inventory right not just USA inventory right?? Looks like oil price went up this week but worldwide inventory didn't go down. any idea how it works

[Optrader 118]

Not sure

But buy oil as much as u can

It is cheap enough

Buy natural gas too

[craigsmith 357]

why does oil price goes down when "USA" rig count and inventory goes down. It has to follow the world wide inventory right not just USA inventory right?? Looks like oil price went up this week but worldwide inventory didn't go down. any idea how it works

Yes, you do have to look at world wide supply/demand. The US rig count, inventory draw information is too micro to have much of an effect, as the US only accounts for about 10% of the world production. The rise in oil prices last week was just a gyration, as the one year chart shows a clear downtrend.

 

http://finviz.com/futures_charts.ashx?p=d1&t=CL

 

I'm not sure if oil has hit the bottom yet, and if I remember right, I think the next OPEC meeting is in two months. I'm thinking about starting a position in CVX or XOM, with the plan to buy more if oil prices continue down.

[Marco 221]

I'm hardly an oil expert - but inventory tends to go down at year end as the oil majors clear out inventory (some tax reason). Don't know why people even follow rig count as its got nothing to do with production. Rig count dropped quite a bit over the oil price drop but US production hardly went down. As Craig says the US are only a fraction of global production. The big swing producer (who has the financial and technical ability to vary production by a significant amount) - Saudi Arabia keeps saying they have no interest to limit production (be it to fight US shale producers and/or Iran or whatever other reason they might have) and Iran wants to regain market share after the end of sanctions so it doesn't look like that the over supply will stop any time soon.

Saudi Arabia just cut subsidies and raised taxes to deal with the massive deficit that the low oil price causes in their national budget and is eating into their reserves quite a bit. I don't see oil price going up by a lot until either they cave in and cut production or demand finally catches up with supply (don't see that with a sluggish economy and fed hiking rates). Fed rate hikes will also mean USD will remain strong which will also remain a drag on crude prices.

 

So I think at best oil prices will stabilise in the new year  and I would be surprised to see prices north of 50$ for WTI. But as they say: It is difficult to make predictions, especially about the future - so who knows ...

[craigsmith 357]

Totally agree, not sure if we'll see oil above $50 or $60 for the next year or so. To me, oil is a funny thing to trade. It's just a commodity, and all commodities prices are traded on supply and demand. You do see where prices are pushed beyond the short term supply/demand, but they usually fall in line again.

 

OPEC (which is basically Saudi Arabia), decided they wanted to kill the US shale production, so they flooded the market. They did a good job, US shale production is basically dead now. They raised production to kill shale, but seems like they didn't count on the basic supply/demand to manage where the price of oil would fall. Saudi Arabia also has some major internal issues they have to juggle. They basically pay their citizens just to keep a lid on things, but with the moves they have made in the past few months (taxes, subsidies mentioned by Marco), this is a country that has the potential to have some major internal issues, and that would lead to the rise in oil prices.

 

Besides all that, when oil prices where at $140, Goldman was saying oil was going to $200. Shortly after that, the price collapsed.

 

A few weeks ago, Goldman said oil was going to $20. I don't think it's possible to get that low, just my opinion. I think I'm ready to go ahead and enter. Not trading oil, but XOM or CVX. I think their stock price will out perform trading oil itself. There is no way this is a "V" recovery, but to me it will stabilize for the next 12-18 months before moving up again.

[Vin 0]

I bought "OIL" ETN at  "6.10"( I think WTI price is ~ $34.5).   I am planning to buy more if it hits ~$30.  I put limit orders to but at $30, $25 and $20. Let me see how it goes.

[Optrader 118]

I am playing oil using uwti

Have picked at thebottom

Ugaz for natural gas

[Vin 0]

Any Idea where the Market is heading ?? Do u guys think SPX will hit 2010 ??